Understanding the China +1 Strategy and Its Impact on Thailand
For decades, China has been the world’s manufacturing powerhouse, offering a combination of knowledge, low-cost labor, and high-quality products. However, in recent years, companies have faced increasing challenges, such as rising labor costs, tariffs, and unexpected supply chain disruptions. These factors have led to the introduction of the China +1 strategy, a diversification approach where companies expand production into other countries.
This strategy is about building supply resilience, reducing risks, and optimizing supply chain costs. By strategically establishing manufacturing capabilities in alternative locations, companies can mitigate disruptions while maintaining access to China’s vast supply network. Among the alternatives, Thailand has emerged as one of the most attractive options due to its strong industrial infrastructure, skilled workforce, and favorable trade agreements.
In this article, we’ll explore the China +1 strategy, its benefits, the importance of a phased transition, its impact on Thailand, and the compelling choice for manufacturers looking to expand beyond China.
What is the China +1 Strategy?
The China +1 strategy is a supply chain diversification approach where companies expand manufacturing operations into additional countries while maintaining a presence in China. Instead of relying solely on Chinese factories, businesses establish production capabilities in alternative locations, such as Thailand, to reduce risk, improve supply chain resilience, and optimize costs.
This strategy has gained momentum due to manufacturing trends and several global shifts. Rising labor costs in China, increasing trade tensions and tariffs, and COVID-related supply chain disruptions have highlighted the risks of over-reliance on a single manufacturing hub. Companies that once viewed China as the obvious choice for production are now seeking alternative countries to mitigate their risks against these challenges.
China remains an essential part of global manufacturing due to its well-developed supply chain, infrastructure, and overall manufacturing knowledge. However, diversifying into a secondary location, such as Thailand, Vietnam, or India, offers manufacturers greater flexibility. Many companies adopting the China +1 strategy start by moving a portion of their production, such as a simpler product to new facilities while keeping the rest of their production in China. This approach gives the manufacturer an understanding of what producing their product outside of China looks like while not affecting their overall supply.
Why China +1 is a Smart Approach for Manufacturers
Nowadays, it’s quite obvious that companies can no longer rely on a supply chain from a single country. The China +1 strategy offers manufacturers a way to mitigate risks, improve cost efficiency, and ensure long-term stability.
Here are three key reasons why adopting a China +1 strategy is the right move for manufacturers:
Supply Chain Resilience
The past few years have exposed the vulnerabilities of over relying on a single country to manufacture their product. Events like trade wars, lockdowns due to COVID-19, and more have disrupted production for companies dependent solely on Chinese suppliers. By expanding into a second country, manufacturers can avoid over-reliance on a single country, ensuring that operations continue even if unexpected disruptions arise.
Cost Optimization and Competitive Labor Rates
While China’s manufacturing ecosystem remains robust, rising labor costs have made production more expensive, particularly for labor-intensive industries. Countries like Thailand offer competitive wages, lower operational costs, and government incentives for foreign manufacturers. By shifting a portion of production to these lower-cost regions, businesses can improve margins without sacrificing quality.
Improved Trade Benefits
Expanding into a secondary manufacturing location can unlock new market opportunities. For example, Thailand is part of ASEAN (Association of Southeast Asian Nations), granting manufacturers access to favorable trade agreements and tariff benefits when exporting to key markets like the EU, Japan, and Australia. In contrast, goods produced in China may be subject to higher tariffs and trade restrictions, making a diversified approach more advantageous.
By implementing a China +1 strategy, manufacturers will end up strengthening their supply chain. To accomplish this, manufacturers need to plan the transition thoughtfully, companies don’t need to relocate everything overnight, but rather develop a phased approach that aligns with their business goals and risk management strategy.
Planning your China +1 Strategy
While most of us can agree that the China +1 strategy offers a lot of benefits, the idea of shifting production to another country seems overwhelming. Many manufacturers may fear that they need to completely relocate their operations out of China, which isn’t necessarily the case. The key to migrating your supply chain is not doing everything at once but developing a phased approach.
Here’s how you can plan your China +1 strategy in a phased approach:
Start with a Simple Product
It’s not necessary to start the migration process with the most complex product or your most important product. The best way to implement the China +1 strategy is to begin by moving a simpler product. These are often the items with lower complexity, easier supply chains, and fewer dependencies on China. By starting small, manufacturers can test the waters in the new country, evaluate performance, and gradually increase production volume. This also allows companies to manage the transition without overwhelming their existing operations.
Does a Dual-Sourcing Strategy Make Sense For You?
Rather than shutting down operations in China immediately, it might make sense to set up a dual-sourcing strategy where key products are manufactured in both China and the new location. This allows you to maintain the benefits of China’s infrastructure while testing the capabilities of your secondary site. As you gain experience with the new location’s capabilities and output, you can scale up production there and reduce dependency on China. This gradual approach mitigates the risk of sudden disruptions.
Evaluate and Optimize Supply Chain Efficiency
Moving to a new location requires careful planning. Rather than simply shifting production, take the time to evaluate your supply chain’s efficiency. Look for opportunities to optimize overall costs, lead times, and inventory management in both regions. This will help you balance production between China and your secondary location, ensuring that your supply chain remains agile and cost-effective.
Monitor and Adjust Based on Market Demand
One of the most significant advantages of a phased transition is the ability to adjust based on market conditions. As you ramp up operations in the new location, monitor customer demand, supply chain metrics, and the economic environment. If needed, you can scale production up or down in response to shifts in demand, giving you the flexibility to adapt as needed.
By taking a step-by-step approach and not rushing to move everything at once, manufacturers can successfully implement a China +1 strategy without risking disruption to their business. The key is to plan the transition thoughtfully, start small, and gradually build up capacity in your secondary location. As your confidence grows and the new site proves valuable, you can scale production to achieve greater supply chain resilience and cost efficiency over time.
China +1 Strategy and Its Impact on Thailand
Thailand has become a top contender for manufacturers looking to implement a China +1 strategy. With its strategic location, favorable trade agreements, and competitive business environment, Thailand offers compelling advantages for companies seeking to diversify their supply chains beyond China. At EPower Corp, we’ve already established a secondary manufacturing facility in Thailand, recognizing the country’s potential to serve as a resilient and cost-effective alternative for our customers.
Here are five reasons why Thailand is an excellent choice for companies looking to expand beyond China:
Strategic Location in Southeast Asia
Thailand’s geographical position makes it a gateway to the ASEAN market, providing easy access to neighboring countries such as Vietnam, Malaysia, Indonesia, and Singapore. This strategic location allows for efficient logistics and distribution, particularly to emerging markets in Asia. Additionally, Thailand’s proximity to China means manufacturers can still maintain strong ties to the Chinese supply chain network while diversifying operations.
Strong Manufacturing Ecosystem
Thailand has a well-established manufacturing base, especially in electronics, automotive, and consumer goods industries. The country’s industrial infrastructure is equipped to handle large-scale production, making it an attractive destination for companies seeking to scale operations. Thailand also has a strong network of suppliers, skilled workers, proficiency in English, and logistics providers that support a wide range of industries, making it easier for companies to set up and expand production with minimal disruption.
Favorable Trade Agreements and Tax Incentives
Thailand is part of numerous free trade agreements. These agreements provide tariff-free access to many global markets, offering significant cost-saving opportunities for manufacturers. The Thai government also offers tax incentives and support for foreign companies setting up manufacturing operations, which further enhances the cost-effectiveness of doing business in the country.
Competitive Labor Costs and Skilled Workforce
Thailand offers a cost-effective labor force compared to China, particularly for labor-intensive industries. The country has made significant investments in education and technical training, producing a skilled workforce capable of handling advanced manufacturing processes. This makes Thailand an appealing alternative for businesses seeking to balance cost reduction with high-quality production standards.
Business-Friendly Environment
The Thai government has been actively promoting foreign direct investment (FDI) by offering various incentives and simplifying regulations. This landscape, plus a strong legal framework provides companies with the confidence to expand and grow in the region without worrying about unexpected political disruptions.
At EPower Corp, we’ve seen firsthand the benefits of expanding into Thailand. Our new production facility in Thailand strengthens our ability to serve our customers while also continuing our operations in China. Thailand’s robust manufacturing ecosystem, trade advantages, and competitive costs make it an ideal location for companies looking to enhance supply chain resilience and optimize production operations in the face of global uncertainties.
Case Studies: Companies Successfully Implementing China +1
The China +1 strategy has been adopted by numerous companies seeking to diversify their manufacturing operations and mitigate risks associated with over-reliance on China. Here are some notable examples:
Let’s Start With Samsung
According to FreightCaviar, Samsung made a strategic decision to relocate its manufacturing from China to Southeast Asia in 2018. This move reduced the risk of the tariffs on Chinese goods and also supply chain disruptions experienced during China’s zero-COVID policy.
Apple Follows
FreightCaviar goes on to say that after Samsung’s success, Apple began diversifying its supply chain. Their decision came as a response to disruptions due to COVID-19 and recognizing the risk of the risks of relying on a single country.
Sony Moves Production to Thailand
As shared by Evertiq, Sony has expanded its manufacturing operations by opening a new semiconductor fabrication facility, known as "Building 4," in Thailand. This facility focuses on assembling image sensors and laser diodes for data center applications, aiming to enhance production capacity and meet growing market demands.
EPower Corp’s Investment in Thailand
The Thailand facility plays a key role in EPower Corp’s commitment to helping both current and future customers successfully implement their China +1 strategy. By establishing a presence in Thailand, we provide our clients with an alternative manufacturing base that supports our clients efforts to build supply chain resilience by reducing dependency on a single country.
Our investment in Thailand represents EPower Corp’s commitment to adapt to market changes, allowing us to increase our production capacity and support growing customer demands. With this facility, we are better equipped to offer shorter lead times, greater flexibility, and enhanced supply chain reliability.
If you're looking to implement a China +1 strategy and strengthen your supply chain, EPower Corp is here to help. Our Thailand facility offers a reliable, cost-effective solution to diversify your production and meet the challenges of today's global market. Contact us today to learn more about how we can support your business in carrying out a successful China +1 strategy and help you stay competitive.